#54 Credit Crunch- Implication of Impairment on Machinery

The economy is slowing down and hit heavily by the current credit crunch crisis. What would be the implication on our auditing?

Based on the prevailing research and information, manufacturing sector is likely to be affected severely. For instance, there might be cancelled sales orders. This would leave some of the machines or fixed assets of the Company become idle. Utilisation rate of the machinery is likely to drop tremendously.

The lower utilisation rate has implication on impairment of machinery, given that some of the machineries will be idle and not involved in generating cash flow to the Company. Non-cash generating unit is an indication on impairment. Because, return on asset ( i.e. machinery) is almost nil in idle condition.